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How Do Tech Companies Make Money? Visualizing Tech Giants Business Models
In the last years, I had the chance to devote most of my waking hours to think about a big issue for any business: distribution.
The way a company structures its operations become vital to its long-term ability to create value. In fact, the business model is an essential part of any business.
Often, especially in the start-up world, there is the belief that a great product or service is all you need. However, that is not the case.
In fact, the tech giants listed in this article all mastered distribution. There is no doubt that each of them has excellent products and offer incredible services.
However, without a proper distributionstrategy, their success wouldn’t have been possible.
Apple’s business model is based on the sales of products. It undeniable that the value of those products is based on Apple’s ability to create a friendly environment for its products.
Had the Apple store not existed, would have Apple managed to sell over 77,316 iPhone and 13,170 iPad in 2017 alone? I doubt it!
Revenues in Bln ($)
iPhone
141,319
61.6%
iPad
19,222
8.4%
Mac
25,850
11.3%
Services
29,980
13.1%
Other (Apple TV, Apple Watch, Beats, iPod touch)
12,863
5.6%
Total
229,234
However, as of 2017, the iPhone represents over 61% of the total sales.
Founded in 1975 Microsoft has survived a few tech bubbles and thrived. In fact, as of the time of this writing, Microsoft is still one of the most valued companies, with a market capitalization of over seven hundred billion dollars.
That is also because the company has been able to use the excess cash it generated in the last decades to acquire new ventures.
In fact, when Microsoft sniffs a trend, it goes all in. For instance, in 2016 Microsoft bought LinkedIn to enter into the professional network space.
Microsoft is also in the search and advertising industry with Bing. In short, Microsoft has been able to use its cash cow, the Microsoft Office System to diversify its business model.
Revenues in Bln($)
Microsoft Office system
25,389
28.2%
Server products & tools
21,758
24.2%
Xbox
9,256
10.3%
Windows PC operating system
8,625
9.6%
Advertising
6,971
7.7%
Consulting & product support services
5,588
6.2%
Devices
4,557
5.1%
LinkedIn
2,268
2.5%
Other
5,538
6.2%
Total
89,950
Today Microsoft is quite diversified and it comprises platforms, like LinkedIn.
Amazon is one of the most disruptive tech companies. It started as an online bookstore to become the everything store; even though most of its revenues come from its store.
There is a growing part of the business that relies on seller services, subscription services (Prime), cloud-based services (AWS). Therefore, Amazon too has a diversified businessmodel.
It is highly probable that the part of the business related to seller services, subscriptions, and cloud-based services will be the most critical part of the company also from the revenue generation standpoint.
Revenues in Bln($)
Online stores
108,354
60.9%
Physical stores
5,798
3.3%
Third-party seller services
31,881
17.9%
Subscription services
9,721
5.5%
AWS
17,459
9.8%
Other
4,653
2.6%
Total
177,866
Although the cloud services represent a small part of the business as of now. What started as a “side project” might be the most important business segment in the coming years.
Google’s business model is based mainly on advertising. Even though the company has placed some bets on products that are not related to its main business model.
Even though Google was a latecomer in the search engine industry, it took it over with the algorithm that changed the web: PageRank.
As of 2017 86% of the revenues come from the advertising networks of Google. In fact, advertising generates over ninety-five billion dollars in revenues; no doubt that is the cash cow for Google.
It is also true that the company is growing other revenue streams (such as Apps, Google cloud, Hardware).
Those sources will grow more and more in the future as Google will rely less on advertising. Google’s businessmodel, able to create value for several key players – I argue – that is the key ingredient to its success.
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